Arun Kelshiker, CFA, Reboot Ambassador, says more effective DE&I policies will make finance sector firms more attractive to employees, customers, and investors.
Institutionalised racism “remains rife throughout financial services” and efforts from organisations to counter discrimination are not working.
This is the damning view from Reboot – a campaigning group of senior financial services professionals targeting greater racial equality in the industry – in its Race to Equality: UK Financial Services Report 2022, which also finds that ethnic minorities are not afforded the same opportunities as white counterparts; racial jokes are still tolerated in their workplace; and employees experience unwelcome comments based on their background.
During August 2022, Reboot surveyed 600 mid-to-senior level ethnic minority and 200 white employees across the financial services sector, representing 392 companies with a combined annual revenue of approximately £1.4 trillion. Of those, 25% described their ethnicity as white, 25% as being from a mixed or multiple ethnic groups, 19% Asian or British Asian, 19% Black, African, Caribbean or Black British, and 12% were from other ethnic groups.
The report paints a decidedly unprogressive picture of the financial services sector typified by “a lack of career progression; discrimination for being a minority group within the UK; and low levels of diversity in the workplace across the UK, particularly in senior roles”.
Arun Kelshiker, Vice Chair of CFA UK’s Diversity, Equity and Inclusion Committee and Reboot Ambassador, says: “Discrimination is a major factor inhibiting the careers of ethnic minority professionals in our industry. Collectively, we have the power to change this and deliver better answers to these questions and much better outcomes for our industry.”
Asset owners are, according to Kelshiker, essential to improving diversity, equality and inclusion (DE&I) at financial services firms, not simply “because it is the right thing to do”, but also diversity is proven to lead to better performance.
“We want to work towards a society where everyone can feel respected, valued, safe and empowered to achieve their full potential without being disadvantaged by their gender, ethnicity, background or characteristics. Research has shown that cognitively diverse teams can lead to better business outcomes and within financial services it’s all the more crucial given the principal fiduciary role that asset owners and investment managers play in society.”
A 2022 report from PwC found that 85% of financial services CEOs say promoting diversity and inclusion has enhanced business performance, while 80% say it has strengthened their brand and company reputation.
Meanwhile a 2020 report from McKinsey found the top quartile financial companies for racial and ethnic inclusion outperformed those in the fourth quartile by 36%.
Yet such compelling reasons to implement effective DE&I policies appear not to be filtering through to those organisations included in the Reboot survey.
The Reboot report reveals a third of leaders do not see diversity as “a critical factor to future success”, despite recognition that more needs to be done to reaffirm DE&I efforts in the financial sector.
Further, ethnic minorities are still underrepresented in positions of leadership, and their pathway to senior roles is far harder than those of white ethnicity.
Lack of diverse role models
Kelshiker says the challenges of improving diversity and inclusion in the financial services sector is manifold.
First, he says we are starting from “an extremely low representative base”, noting that the CFA Institute cites that of the US$69 trillion of assets managed in the US, only 1.3% are managed by organisations led by women or people of colour. In the UK, there were believed to be only 13 black fund managers across the entire investment management industry in 2020.
He says: “This gives rise to a lack of diverse and visible role models; it becomes so much easier for talented and aspiring individuals to achieve their potential if they can see people they relate to, who have made it.”
Kelshiker says workplaces “need to grow in both their intention as well as their awareness and skills-building on DE&I issues, so as to provide an environment that actively supports diversity, equity and inclusion”.
This view is reflected in an analysis from the Financial Conduct Authority (FCA) published this December which looked at diversity and inclusion policies and strategies from 12 large firms across the sector.
The regulator found that DE&I approaches “are not consistently based on a clear diagnosis of their specific circumstances and challenges”.
The FCA argues the result is actions and initiatives that are not “appropriately focused” and leaves organisations less able to systematically track their effectiveness.
“This leads to a lack of understanding about what really works. Without a strategy informed by a diagnostic process and better tracking of initiatives, some firms risk expending considerable resource without seeing meaningful results,” the FCA says.
Reluctance to speak up
A lack of focus on DE&I may be explained by a dearth of useful data on the ethnicity of a workforce.
“Lack of data and metrics is a huge challenge with respect to implementing effective DE&I strategies and basically within financial services, what gets measured, gets managed,” says Kelshiker, a former Head of Asset Allocation and Portfolio Strategy at Standard Chartered Bank and a senior portfolio manager and country Chief Investment Officer with Allianz Global Investors.
Data privacy laws – such as the General Data Protection Regulation – which prohibit processing information about racial or ethnic origin and data concerning a natural person’s sex life or sexual orientation – cause huge challenges.
Kelshiker says “This is an issue as data on these sensitive categories are very helpful when firms are formulating and actioning effective DE&I strategies.”
The FCA survey found a wide variation in data quality, noting that firms with better diversity data “had a better understanding of their position and were better placed to decide which actions to take”.
“This variation was largely the result of differing levels of success with staff declaration rates. Firms with the best declaration rates have worked hard to achieve this, with focused initiatives to build trust and understanding, and optimising touch points with staff,” the FCA reports.
But Kelshiker says people “may be reluctant to speak up with respect to their lived DE&I experiences as they often they feel that it’s not helpful”.
This is highlighted in Reboot’s survey which finds that of those who have experienced racial discrimination, 52% say they have come under greater scrutiny by managers, while 48% say colleagues have treated them differently for speaking up.
Kelshiker says: “All of these issues are compounded by a DE&I allyship shortfall; this clearly needs to change. Twenty-two per cent of white peers feel uncomfortable talking about race in the workplace. If we can’t even have the conversations, how can we action solutions which would benefit everyone.”
The propensity of financial services firms to focus on gender in DE&I policies rather than race is also hampering efforts to improve the workplace for minorities.
The FCA says the firms it spoke to are “most focused on addressing gender representation, with ethnicity starting to receive more attention. Other demographic characteristics receive much less attention”.
Kelshiker agrees, noting: “Diversity, equity and inclusion covers a broad range of highly relevant issues. Most efforts to date have focused on gender and we need to broaden the scope to drive efforts along other DEI dimensions including race and ethnicity, socio-economic mobility and other characteristics.”
He adds: “We need to effectively use DE&I strategies to grow cognitively diverse talent pools which can support the hiring, promotion and retention of diverse talent.”
The route to improving DE&I in the workplace requires, according to Reboot, three courses of action.
First, leaders must “take charge [and] set the tone”, and not outsource diversity and inclusion.
The report states: “By championing the cause from the top and supporting ethnic minority role models within the business, it will help to empower workforces and create an environment where employees feel comfortable to talk about race, just like we have observed with gender diversity.”
Second, organisations need to challenge “negative office cultures”.
“Racism has no place in the modern workplace, and it is telling that ethnicity-related jokes are still heard in offices across the industry. These behaviours need to be challenged and extinguished if we are to create a safe working environment for those of every background,” Reboot says.
Finally, firms must close the ethnicity gap and be transparent, which Reboot says will make them more accountable.
Kelshiker says: “Organisations that can show that they are fair will be more attractive to employees, customers, and investors.”